Assets Expropriation via Cash Dividends? Free Cash Flow or Tunneling

This study solves the dispute between the free cash flow and tunneling hypotheses in explaining the role of cash dividends on asset expropriation of the controlling shareholders in Chinese listed firms. Investors value more the cash dividends and the cash holdings of firms with lower ownership contr...

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Main Authors: Jeng-Ren Chiou, Yenn-Ru Chen, Ting-Chiao Huang
Format: Article
Language:English
Published: Elsevier 2010-06-01
Series:China Journal of Accounting Research
Subjects:
Online Access:http://www.sciencedirect.com/science/article/pii/S1755309113600209
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spelling doaj-50204b5a98434b59897f33f8def095102020-11-24T22:50:35ZengElsevierChina Journal of Accounting Research1755-30912010-06-013C719310.1016/S1755-3091(13)60020-9Assets Expropriation via Cash Dividends? Free Cash Flow or TunnelingJeng-Ren Chiou0Yenn-Ru Chen1Ting-Chiao Huang2Department of Accountancy and Graduate Institute of Finance, National Cheng Kung University, TaiwanDepartment of Accountancy and Graduate Institute of Finance, National Cheng Kung University, TaiwanDepartment of Accountancy, National Cheng Kung University, TaiwanThis study solves the dispute between the free cash flow and tunneling hypotheses in explaining the role of cash dividends on asset expropriation of the controlling shareholders in Chinese listed firms. Investors value more the cash dividends and the cash holdings of firms with lower ownership control than those of firms with higher ownership control. This is more consistent with the tunneling hypothesis. However, when investment opportunities are considered, the free cash flow hypothesis better explains firms' dividend policy. Investors value more the cash dividends of firms with fewer investment opportunities and higher probability of expropriation. This study indicates that investors are concerned with the potential asset expropriation through cash payouts, unless firms possess high growth opportunities.http://www.sciencedirect.com/science/article/pii/S1755309113600209Cash holdingsCash dividendsOwnership controlAsset tunnelingAgency problems
collection DOAJ
language English
format Article
sources DOAJ
author Jeng-Ren Chiou
Yenn-Ru Chen
Ting-Chiao Huang
spellingShingle Jeng-Ren Chiou
Yenn-Ru Chen
Ting-Chiao Huang
Assets Expropriation via Cash Dividends? Free Cash Flow or Tunneling
China Journal of Accounting Research
Cash holdings
Cash dividends
Ownership control
Asset tunneling
Agency problems
author_facet Jeng-Ren Chiou
Yenn-Ru Chen
Ting-Chiao Huang
author_sort Jeng-Ren Chiou
title Assets Expropriation via Cash Dividends? Free Cash Flow or Tunneling
title_short Assets Expropriation via Cash Dividends? Free Cash Flow or Tunneling
title_full Assets Expropriation via Cash Dividends? Free Cash Flow or Tunneling
title_fullStr Assets Expropriation via Cash Dividends? Free Cash Flow or Tunneling
title_full_unstemmed Assets Expropriation via Cash Dividends? Free Cash Flow or Tunneling
title_sort assets expropriation via cash dividends? free cash flow or tunneling
publisher Elsevier
series China Journal of Accounting Research
issn 1755-3091
publishDate 2010-06-01
description This study solves the dispute between the free cash flow and tunneling hypotheses in explaining the role of cash dividends on asset expropriation of the controlling shareholders in Chinese listed firms. Investors value more the cash dividends and the cash holdings of firms with lower ownership control than those of firms with higher ownership control. This is more consistent with the tunneling hypothesis. However, when investment opportunities are considered, the free cash flow hypothesis better explains firms' dividend policy. Investors value more the cash dividends of firms with fewer investment opportunities and higher probability of expropriation. This study indicates that investors are concerned with the potential asset expropriation through cash payouts, unless firms possess high growth opportunities.
topic Cash holdings
Cash dividends
Ownership control
Asset tunneling
Agency problems
url http://www.sciencedirect.com/science/article/pii/S1755309113600209
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AT yennruchen assetsexpropriationviacashdividendsfreecashflowortunneling
AT tingchiaohuang assetsexpropriationviacashdividendsfreecashflowortunneling
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